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Tax changes do the trick

Tax changes do the trick
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Tax changes do the trick ... At least for some

Anthony Byett

[Market metrics]

The fear had been that the 1 October tax changes—more GST, less income tax—would simply bring forward spending and leave a gap afterwards. To some extent this has happened, with big-ticket sales rising and then falling, but more generally spending has increased since 1 October, both in terms of the volume and the value of sales.

First, prices did increase as expected, but not by the full extent of the 2.5 percent GST rate increase. The average value of Paymark transactions in October increased only 1.6 percent for outlets selling lowerpriced products/services but Market metrics Anthony Byett declined 2.9 percent among big-ticket outlets, suggestive of only partial pass-through of the GST increase among many stores and renewed discounting at stores selling big-ticket items.

Second, volumes increased as well. The total number of transactions through the Paymark electronic network increased faster in October than at any time during the previous six months, although again this lift was not experienced by all sectors. The initial surge has been led by the food retailers. Also we were more inclined to eat out. But still we remain cautious about spending on the house and and on keeping up our visits to the hairdresser, dentist and optometrist—and visits in general judging by the fall in spending at travel agents and duty free stores.

The net effect of higher prices and more transactions is that we are now spending more: even in Auckland, where spending had lagged for most of the year, and in Canterbury, where disaster struck in September. Tax cuts can only do a limited amount, though, for Wellington—their woes continue.

Anthony Byett is an economist who consults to Paymark, New Zealand’s largest Eftpos provider